Cities flex economic might in pursuit of new solutions
September 23, 2015
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When the Brookings Institution reported this July that “the responsibility for much economic leadership is shifting downward” and often to local institutions, it spotlighted the latest chapter in what Drexel University’s Bruce Katz characterizes as an accelerating global trend: cities leaning more vigorously into their role as economic actors. “Cities are naturally in the problem-solving business,” explains Katz, who is director of the university’s Nowak Metro Finance Lab. “Now, changing dynamics at the global, national, and provincial levels are creating new opportunities for them” to address urgent challenges by flexing their economic muscles.
Some cities are assembling unlikely coalitions to strengthen supply chains. Others are steering private-sector investment by reducing risk. And others still are creating demand for alternative consumer goods. These moves are, in part, a function of the evolving challenges local leaders and their communities face, which can’t be fully addressed by traditional economic interventions. But they also reflect mayors’ recognition that their proximity to residents and convening power give them distinctive leverage to test innovative approaches that help markets work better for their communities.
Using convening power to create a self-sustaining business model.
In Rourkela, India, local leaders are confronting what, in some ways, is a classic market failure: Farmers’ vegetables go to waste (because of heat) before they can sell them at reasonable prices, leaving producers in dire financial straits. But while a traditional government intervention might have depended on providing those farmers subsidies, Rourkela has deployed a Bloomberg Philanthropies Mayors Challenge-winning approach that taps into the city’s convening power to create a brand-new, self-sustaining business model.
At its core, the problem in Rourkela was that the people powering the local food system were themselves struggling to survive. Part of the trouble was technological—the cold-storage rooms set up to help the farmers were compromised by an undependable electric grid. But the greater challenge was one of networks and knowledge. Farmers didn’t know how to access those cold-storage rooms, and there was no player in the local food market with an incentive to help them do so.
That’s where the city stepped in. Local leaders identified a community that could help solve the problem by essentially serving as the business partners the farmers never had: local women's self-help groups. These groups are composed of residents who work together to save money and identify ways to improve their quality of life. And the idea was that by helping manage cold-storage rooms and, in some cases, purchasing farmers’ produce and conducting their own bulk sales to hotels and restaurants, these groups would provide farmers more security and support themselves economically. And it’s worked, cutting food spoilage by 31 percent and increasing farmers’ income by 60 percent. Crucially, the system has also started to become self-sustaining, with several cold storage rooms already pulling in enough monthly revenue not to rely on outside support.
Ultimately, the city isn’t creating a new market so much as introducing new roles and revenue models to a pre-existing one in a strategic way. And according to Aparna Ramanan, who leads the Mayors Challenge at Bloomberg Philanthropies, it was the city’s ability to bring together a constellation of actors and align their incentives that proved a critical ingredient in their success. “Each individual component part of this whole system already existed before the project,” she explains. “But to bring all of these people together, you needed the city as a convener.”
Cities have traditionally used a few key levers, such as zoning rules, to regulate their housing markets and keep them in step with resident needs. And they continue to do so, with a wave of local leaders in the United States, for example, overhauling those rules in recent years to allow new kinds of “missing middle,” multi-family housing where it was once only possible to build single-family homes. But now, some local leaders are taking the next step, using new levers to nudge the private sector toward producing what people need at the speed that they need it by reducing uncertainty.
Take Dearborn, Mich. Mayor Abdullah H. Hammoud and his team recently conducted a study showing that they need to quickly build 1,500 new housing units to keep up with population growth. Now, leaning on that local insight, the city is taking a novel approach: pre-developing plots of land by surveying them and even generating a handful of fast-track blueprints for new homes. Essentially, the city is de-risking investment in those properties from private-sector developers who, because of the city's legwork, will face few regulatory hurdles when they consider new projects on that land.
“We’re taking the uncertainty away and saying, ‘Hey, we've created a safe zone here. If you follow this design, you're going to go lightning fast,’” explains Jordan Twardy, the city’s director of economic development.
Creating demand for a critical product.
In Surabaya, Indonesia, which is a finalist city in the 2025 Mayors Challenge, leaders are using a very different kind of market lever: generating demand for an alternative product through both behavioral and financial tools.
The challenge Surabaya’s leaders are confronting is pollution in the Brantas River as a result of the tremendous number of disposable diapers people leave there. The city’s solution isn’t just to address the diaper dumping, as it’s doing through executive orders and social-media campaigns, but also to conduct market research on what people need to switch to reusable diapers—and then to meet that need.
For example, with low-income residents, local leaders are making a simple appeal: Reusable diapers can save you money. And the city is planning to use their own spin on a traditional development tool—microfinancing—to help them purchase the reusable diapers, which they believe can save residents 70 percent of what they normally spend on the products. At the same time, early prototyping of the project has revealed that the bigger concern for middle-income residents is time, or the hassle of washing something that doesn’t belong in the same machine as their clothes. So the city is piloting a model of making portable washing machines available to help them do so.
In essence, explains Dedik Irianto, head of the city’s environmental agency, local leaders are filling gaps—money for lower income residents, time and convenience for middle-income residents—to create demand. Ultimately, the objective is to create a situation where “there's no reason not to say yes” and use the alternative product.
Whether it’s diapers in Surabaya, housing in Dearborn, or produce in Rourkela, it’s clear that city leaders are determined to not just address the aftermath of market failures, but find creative new ways to interrupt them. And it’s just as clear that cities are determined to learn from each other when they assert themselves as economic actors in this way. The Rourkela approach to the vegetable market, for example, is already being recreated in dozens of cities as part of the Bloomberg Cities Idea Exchange. And while these efforts may not yet amount to full-on market shaping, they show how cities are starting to test market dynamics in ways that could evolve further—and are recognizing they have a new, more strategic part to play as stewards of their economies.
As Ryan Pierce, who is leading replication work for Bloomberg Philanthropies, explains, “There is a critical role for mayors everywhere to play in local markets when there is an urgent need faced by their residents that isn't being addressed.”
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